246 SUPREME COURT REPORTS ANNOTATED

Atlas Consolidated Mining & Dev. Corp. vs.Commissioner

of Internal Revenue

*
No. L26911. January 27, 1981.

ATLAS CONSOLIDATED MINING & DEVELOPMENT

CORPORATION, petitioner, vs. COMMISSIONER OF
INTERNAL REVENUE, respondent.
*
No. L26924. January 27, 1981.

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs. ATLAS CONSOLIDATED MINING &
DEVELOPMENT CORPORATION and COURT OF TAX
APPEALS, respondents.

Taxation Basic requisites for deductibility of business

expenses.We come, then, to the statutory test of deductibility
where it is axiomatic that to be deductible as a business expense,
three conditions are imposed, namely: (1) the expense must be
ordinary and necessary, (2) it must be paid or incurred within the
taxable year, and (3) it must be paid or incurred in carrying in a
trade or business. In addition, not only must the taxpayer meet
the business test, he must substantially prove by evidence or
records the deductions claimed under the law, otherwise, the
same will be disallowed. The mere allegation of the taxpayer that
an item of expense is ordinary and necessary does not justify its
deduction.
Same There is no hard and fast rule for deductibility of any
specific type of business expense.There is thus no hard and fast
rule on the matter. The right to a deduction depends in each case
on the particular facts and the relation of the payment to the type
of business in which the taxpayer is engaged. The intention of the
taxpayer often may be the controlling fact in making the
determination. Assuming that the expenditure is ordinary and
necessary in the operation of the taxpayers business, the answer
to the question as to whether the expenditure is an allowable
deduction as a business expense must be determined from the
nature of the expenditure itself, which in turn depends on the
extent and permanency of the work accomplished by the
expenditure.

_______________

* FIRST DIVISION

247

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Atlas Consolidated Mining & Dev. Corp. vs.Commissioner of

Internal Revenue

Same Expenses paid to advertising firm to promote sale of

capital stock for acquisition of additional capital is not deductible
from taxable income.That the expense in question was incurred
to create a favorable image of the corporation in order to gain or
maintain the publics and its stockholders patronage, does not
make it deductible as business expense. As held in the case of
Welch vs. Helvering, efforts to establish reputation are akin to
acquisition of capital assets and, therefore, expenses related
thereto are not business expense but capital expenditures.
Same Commissioner of Internal Revenue cannot raise for the
first time on appeal the issue of the fact of paymentstock transfer
agents feesof a corporate expense.On this issue of whether or
not the Commissioner can raise the fact of payment for the first
time on appeal in its memorandum in the Court of Tax Appeals,
We fully agree with the ruling of the tax court that the
Commissioner on appeal cannot be allowed to adopt a theory
distinct and different from that he has previously pursued, as
shown by the BIR records and the answer to the amended petition
for review. As this Court said in the case of Commissioner of
Customs vs. Valencia such change in the nature of the case may
not be made on appeal, specially when the purpose of the latter is
to seek a review of the action taken by an administrative body,
forming part of a coordinate branch of the Government, such as
the Executive department. In the case at bar, the Court of Tax
Appeal found that the fact of payment of the claimed deduction
from gross income was never controverted by the Commissioner
even during the initial stages of routinary administrative scrutiny
conducted by BIR examiners. Specifically, in his answer to the
amended petition for review in the Court of Tax Appeal, the
Commissioner did not deny the fact of payment, merely contesting
the legitimacy of the deduction on the ground that same was not
ordinary and necessary business expenses.
 Same Stock transfer fee where a recurring expense is an
allowable deduction from taxable income.We find the
Chesapeake decision controlling with the facts and circumstances
of the instant case. In Dome Mines, Ltd. case the stock listing fee
was disallowed as a deduction not only because the expenditure
did not meet the statutory test but also because the same was
paid only once, and the benefit acquired thereby continued
indefinitely, whereas, in the Chesapeake Corporation case, fee
paid to the stock exchange was an

248

248 SUPREME COURT REPORTS ANNOTATED

Atlas Consolidated Mining & Dev. Corp. vs. Commissioner of

Internal Revenue

nual and recurring. In the instant case, We deal with the stock
listing fee paid annually to a stock exchange for the privilege of
having its stock listed. It must be noted that the Court of Tax
Appeal rejected the Dome Mines case because it involves a
payment made only once, hence, it was held a capital expenditure,
as distinguished from the instant case, where payments were
made annually. For this reason, We hold that said listing fee is an
ordinary and necessary business expense.
Same Where a contingency fee was in fact added back to
income is a question of fact in regard which the Court of Tax
Appeals finding will, as a rule, be respected.On this issue, this
Court has consistently ruled in several cases adverted to earlier,
that in the absence of grave abuse of discretion or error on the
part of the tax court its findings of facts may not be disturbed by
the Supreme Court. It is not within the province of this Court to
resolve whether or not the P60,000 representing provision for
contingencies was in fact added to or deducted from the taxable
income. As ruled by the Court of Tax Appeals, the said amount
was in effect added to Atlas taxable income. The same being
factual in nature and supported by substantial evidence, such
findings should not be disturbed in this appeal.
Same Litigation expense incurred in defense of title to
property is capital in nature and not deductible.There is no
question that, as held by the Court of Tax Appeals, the litigation
expenses under consideration were incurred in defense of Atlas
title to its mining properties. In line with the decision of the U.S.
Tax Court in the case of Safety Tube Corp. vs. Commissioner of
Internal Revenue, it is well settled that litigation expenses
incurred in defense or protection of title are capital in nature and
not deductible. Likewise, it was ruled by the U.S. Tax Court that
expenditures in defense of title of property constitute a part of the
cost of the property, and are not deductible as expense.
Same Taxes are the lifeblood of the nation. Neglect or
omission of tax officials in collection of taxes should not be allowed
to visit harm on the treasury and is deemed an exception to the
rule on estoppel.As held in the case of Vera vs. Fernandez, this
Court emphatically said that taxes are the lifeblood of the
Government and their prompt and certain availability are
imperious need. Upon taxation depends the Governments ability
to serve the people for whose

249

VOL. 102, JANUARY 27, 1981 249

Atlas Consolidated Mining & Dev. Corp. vs. Commissioner of

Internal Revenue

benefit taxes are collected. To safeguard such interest, neglect or

omission of government officials entrusted with the collection of
taxes should not be allowed to bring harm or detriment to the
people, in the same manner as private persons may be made to
suffer individually on account of his own negligence, the
presumption being that they take good care of their personal
affair. This should not hold true to government officials with
respect to matters not of their own personal concern. This is the
philosophy behind the governments exception, as a general rule,
from the operation of the principle of estoppel.

PETITIONS for review from the decision of the Court of

Tax Appeals.

The facts are stated in the opinion of the Court.

DE CASTRO, J.:

These are two (2). petitions for review from the decision of
the Court of Tax Appeals of October 25, 1966 in CTA Case
No. 1312 entitled Atlas Consolidated Mining and
Development Corporation vs. Commissioner of Internal
Revenue. One (L26911) was filed by the Atlas
Consolidated Mining & Development Corporation, and in
the other (L26924), the Commissioner of Internal Revenue
is the petitioner.
This tax case (CTA No. 1312) arose from the 1957 and
1958 deficiency income tax assessments made by the
Commissioner of Internal Revenue, hereinafter referred to
as Commissioner, where the Atlas Consolidated Mining
and Development Corporation, hereinafter referred to as
Atlas, was assessed P546,295.16 for 1957 and P215,493.96
for 1958 deficiency income taxes.
Atlas is a corporation engaged in the mining industry
registered under the laws of the Philippines. On August 20,
1962, the Commissioner assessed against Atlas the sum of
P546,295.16 and P215,493.96 or a total of P761,789.12 as
deficiency income taxes for the years 1957 and 1958. For
the year 1957, it was the opinion of the Commissioner that
Atlas is not

250

250 SUPREME COURT REPORTS ANNOTATED

Atlas Consolidated Mining & Dev. Corp. vs. Commissioner
of Internal Revenue

entitled to exemption
1
from the income tax under Section 4
of Republic Act 909 because same covers only gold mines,
the provision of which reads:

New mines, and old mines which resume operation, when

certified to as such by the Secretary of Agriculture and Natural
Resources upon the recommendation of the Director of Mines,
shall be exempt from the payment of income tax during the first
three (3) years of actual commercial production. Provided that,
any such mine and/or mines making a complete return of its
capital investment at any time within the said period, shall pay
income tax from that year.

For the year 1958, the assessment of deficiency income tax

of P761,789.12 covers the disallowance of items claimed by
Atlas as deductible from gross income.
On October 9, 1962, Atlas protested the assessment
2
asking for its reconsideration and cancellation. Acting on
the protest, the Commissioner conducted a reinvestigation
of the case.
On October 25, 1962, the Secretary of Finance ruled that
the exemption provided in Republic Act 909 embraces all3
new mines and old mines whether gold or other minerals.
Accordingly, the Commissioner recomputed Atlas
deficiency income tax liabilities in the light of the ruling of
the Secretary of Finance. On June 9, 1964, the
Commissioner issued a revised assessment entirely
eliminating the assessment of P546,295.16 for the year
1957. The assessment for 1958 was reduced from
P215,493.96 to P39,646.82 from which Atlas appealed to
the Court of Tax Appeals, assailing the disallowance of the
following items claimed as deductible from its gross
income for 1958:

___________________

1 R.A. 909, An Act to amend Sections 242, 243 and to repeal Section 244
of Commonwealth Act No. 466, otherwise known as the National Internal
Revenue Code (Approved June 20, 1953).
2 pp. 280307, Folder III, BIR Records.
3 p. 385, ibid.

251

VOL. 102, JANUARY 27, 1981 251

Atlas Consolidated Mining & Dev. Corp. vs.Commissioner
of Internal Revenue

Transfer agents fee P59,477.42

.......................................................
Stockholders relation service fee 25,523.14
...................................
U.S. stock listing expenses 8,326.70
............................................
Suit expenses 6,666.65
..................................................................
Provision for contingencies 60,000.00
...........................................
Total P159,993.91
......................................................................

After hearing, the Court of Tax Appeals rendered a

decision on October 25, 1966 allowing the abovementioned
disallowed items, except the items denominated by Atlas as4
stockholders relation service fee and suit expenses.
Pertinent portions of the decision of the Court of Tax
Appeals read as follows:

Under the facts, circumstances and applicable law in this case,

the unallowable deduction from petitioners gross income in 1958
amounted to P32,189.79.

Stockholders relation
service fee ....................................................... P25,523.14
Suit and litigation
expenses 6,666.65
..........................................................
Total ................................................................ P32,189.79

As the exemption of petitioner from the payment of corporate

income tax under Section 4, Republic Act 909, was good only up to
the 1st quarter of 1958 ending on March 31 of the same year, only
threefourth (3/4) of the net taxable income of petitioner is subject
to income tax, computed as follows:

1958
Total net income for 1958 P1,968,898.27
....................................................
Net income corresponding to
taxable period April 1 to
Dec. 31, 1958, 3/4 of
P1,968,898.27 1,476,673.70
..................................................................

__________________

4 p. 33, Rollo, G.R. No. L26911.

252

252 SUPREME COURT REPORTS ANNOTATED

Atlas Consolidated Mining & Dev. Corp. vs. Commissioner
of Internal Revenue

Add: 3/4 of promotion fees

of P19,142.35
P25,523.14...................................................................
Litigation
expenses 6,666.65
.....................................................................
Net income per decision P1,502,482.70
.......................................................
Tax due thereon 412,695.00
....................................................................
Less: Amount already 405,468.00
assessed.............................................
DEFICIENCY INCOME TAX DUE P 7,227.00
Add: 1/2% monthly interest
from 62059 to 62062 (18%) P 1,300.89
TOTAL AMOUNT DUE & COLLECTIBLE. P 8,526.22

From the Court of Tax Appeals decision of October 25,

1966, both parties appealed to this Court by way of two (2)
separate petitions for review docketed as G. R. No. L26911
(Atlas, petitioner) and G. R. No. L29924 (Commissioner,
petitioner). G. R. No. L26911Atlas appealed only that
portion of the Court of Tax Appeals decision disallowing
the deduction from gross income of the socalled
stockholders relation service fee amounting to P25,523.14,
making a lone assignment of error that

THE COURT OF TAX APPEALS ERRED IN ITS CONCLUSION

THAT THE EXPENSE IN THE AMOUNT OF P25,523.14 PAID
BY PETITIONER IN 1958 AS ANNUAL PUBLIC RELATIONS
EXPENSES WAS INCURRED FOR ACQUISITION OF
ADDITIONAL CAPITAL, THE SAME NOT BEING SUPPORTED
BY THE EVIDENCE.

It is the contention of Atlas that the amount of P25,523.14

paid in 1958 as annual public relations expenses is a
deductible expense from gross income under Section 30(a)
(1) of the National Internal Revenue Code. Atlas claimed
that it was paid for services of a public relations firm, P.K.
Macker & Co., a reputable public relations consultant in
New York City, U.S.A., hence, an ordinary and necessary
business expense in order to compete with other
corporations also interested in
253

VOL. 102, JANUARY 27, 1981 253

Atlas Consolidated Mining & Dev. Corp. vs. Commissioner
of Internal Revenue

5
the investment market in the United States. It is the
stand of Atlas that information given out to the public in
general and to the stockholder in particular by the P.K.
Macker & Co. concerning the operation of the Atlas was
aimed at creating a favorable image and goodwill to gain or
maintain their patronage.
The decisive question, therefore, in this particular
appeal taken by Atlas to this Court is whether or not the
expenses paid for the services rendered by a public
relations firm P.K. Macker & Co. labelled as stockholders
relation service fee is an allowable deduction as business
expense under Section 30 (a) (1) of the National Internal
Revenue Code.
The principle is recognized that when a taxpayer claims
a deduction, he must point to some specific provision of the
statute in which that deduction is authorized and must be
able to prove that he is entitled to the deduction which the
law allows. As previously adverted to, the law allowing
expenses as deduction from gross income for purposes of
the income tax is Section 30 (a) (1) of the National Internal
Revenue which allows a deduction of all the ordinary and
necessary expenses paid or incurred during the taxable
year in carrying on any trade or business. An item of
expenditure, in order to be deductible under this section of
the statute, must fall squarely within its language.
We come, then, to the statutory test of deductibility
where it is axiomatic that to be deductible as a business
expense, three conditions are imposed, namely: (1) the
expense must be ordinary and necessary, (2) it must be
paid or incurred within the taxable year, and (3) it must6 be
paid or incurred in carrying in a trade or business. In
addition, not only must the taxpayer meet the business
test, he must substantially prove by evidence or records the
deductions claimed under the law, otherwise, the same will
be disallowed. The mere allegation of

________________

5 p. 11, Atlas Memorandum in the Court of Tax Appeals.

6 Collector of Internal Revenue vs. Philippine Education Co., 99 Phil.
319 (May 30, 1956).

254

254 SUPREME COURT REPORTS ANNOTATED

Atlas Consolidated Mining & Dev. Corp. vs.Commissioner
of Internal Revenue

the taxpayer that an item of expense 7

is ordinary and
necessary does not justify its deduction.
While it is true that there is a number of decisions in the
United States delving on the interpretation of the terms
ordinary and necessary as used in the federal tax laws, no
adequate or satisfactory definition of those terms is
possible. Similarly, this Court has never attempted to
define with precision the terms ordinary and necessary.
There are however, certain guiding principles worthy of
serious consideration in the proper adjudication of
conflicting claims. Ordinarily, an expense will be
considered necessary where the expenditure is
appropriate and helpful
8
in the development of the
taxpayers business. It is ordinary when it connotes a
payment which is normal in relation to the business
9
of the
taxpayer and the surrounding circumstances. The term
ordinary does not require that the payments be habitual
or normal in the sense that the same taxpayer will have to
make them often the payment may be unique 10
or non
recurring to the particular taxpayer affected.
There is thus no hard and fast rule on the matter. The
right to a deduction depends in each case on the particular
facts and the relation of the payment to the type of
business in which the taxpayer is engaged. The intention of
the taxpayer often 11may be the controlling fact in making
the determination. Assuming that the expenditure is
ordinary and necessary in the operation of the taxpayers
business, the answer to the question as to whether the
expenditure is an allowable deduction as a business
expense must be determined from the nature of the

__________________

7 De Vera vs. Collector, CTA Case No. 164, March 23, 1959 Basilan
Estates, Inc. vs. Commissioner, September 5, 1967, 21 SCRA 17.
8 Mertens, Law of Federal Income Taxation, Volume IV, p. 315.
9 p. 316, Ibid.
10 Ibid.
11 Eaton vs. Comm., 81 F. (2d) 332 (CCA 9th, 1936) cited in Mertens,
supra.

255

VOL. 102, JANUARY 27, 1981 255

Atlas Consolidated Mining & Dev. Corp. vs.Commissioner
of Internal Revenue

expenditure itself, which in turn depends on the extent and

12
permanency of the work accomplished by the expenditure.
It appears that on December 27, 1957, Atlas increased
13
its capital stock from P15,000,000 to P18,325,000. It was
claimed by Atlas that its shares of stock worth P3,325,000
were sold in the United States because of the services
rendered by the public relations firm, P. K. Macker &
Company. The Court of Tax Appeals ruled that the
information about Atlas given out and played up in the
mass communication media resulted in full subscription of
the additional shares issued by Atlas consequently, the
questioned item, stockholders relation service fee, was in
effect spent for the acquisition of additional capital, ergo, a
capital expenditure.
We sustain the ruling of the tax court that the
expenditure of P25,523.14 paid to P.K. Macker & Co. as
compensation for services carrying on the selling campaign
in an effort to sell Atlas additional capital stock of
P3,325,000 is not an ordinary expense in line with the
decision of U.S. Board of Tax Appeals in the case of
Harrisburg
14
Hospital, Inc. vs. Commissioner of Internal
Revenue. Accordingly, as found by the Court of Tax
Appeals, the said expense is not deductible from Atlas
gross income in 1958 because expenses relating to
recapitalization and reorganization of the corporation
(MissouriKansas Pipe Line vs. Commissioner of Internal
Revenue, 148 F. (2d), 460 Skenandos Rayon Corp. vs.
Commissioner of Internal Revenue, 122 F. (2d) 268, Cert.
denied 314 U.S. 6961), the cost of obtaining stock
subscription (Simons Co., 8 BTA 631), promotion expenses
(Beneficial Industrial Loan Corp. vs. Handy, 92 F. (2d) 74),
and commission or fees paid for the sale of stock

______________

12 Duesenberg, Inc. of Del., 31 BTA 922, affd 84 F. (2d) 921 (CCA 7th,
1936) cited in Mertens, Law of Federal Income Taxation, Vol. IV, p. 339
Illinois Central Railroad Co. vs. Interstate Commerce Commission, 206 S.
Court, 700 (1907), cited in Simons & Hammond, 1 BTA 803.
13 p. 24, Rollo, G.R. No. L26911.
14 15 BTA 10161017.

256

256 SUPREME COURT REPORTS ANNOTATED

Atlas Consolidated Mining & Dev. Corp. vs. Commissioner
of Internal Revenue

reorganization (Protective Finance Corp., 23 BTA 308) are

capital expenditures.
That the expense in question was incurred to create a
favorable image of the corporation in order to gain or
maintain the publics and its stockholders patronage, does
not make it deductible as business
15
expense. As held in the
case of Welch vs. Helvering, efforts to establish reputation
are akin to acquisition of capital assets and, therefore,
expenses related thereto are not business expense but
capital expenditures.
We do not agree with the contention of Atlas that the
conclusion of the Court of Tax Appeals in holding that the
expense of P25,523.14 was incurred for acquisition of
additional capital is not supported by the evidence. The
burden of proof that the expenses 16
incurred are ordinary
and necessary is on the taxpayer and does not rest upon
the Government. To avail of the claimed deduction under
Section 30(a) (1) of the National Internal Revenue Code, it
is incumbent upon the taxpayer to adduce substantial
evidence to establish a reasonably proximate relation
between the expenses to the ordinary conduct of the
business of the taxpayer. A logical link or nexus between
the expense and the taxpayers business must be
established by the taxpayer.
G. R. No. L26924In his petition for review, the
Commissioner of Internal Revenue assigned as errors the
following:

THE COURT OF TAX APPEALS ERRED IN ALLOWING THE

DEDUCTION FROM GROSS INCOME OF THE SOCALLED
TRANSFER AGENTS FEES ALLEGEDLY PAID BY
RESPONDENT

_______________

15 290 U.S. 111, 78 L. Ed. 212, 54S Ct. 8 (1933).

16 Alhambra Cigar & Cigarette Manufacturing Co. vs. Collector of
Internal Revenue, CTA Case No. 143, July 31, 1956 De Vera vs. Collector,
CTA Case No. 164, March 23, 1959.

257

VOL. 102, JANUARY 27, 1981 257

Atlas Consolidated Mining & Dev. Corp. vs.Commissioner
of Internal Revenue

II

THE COURT OF TAX APPEALS ERRED IN ALLOWING THE

DEDUCTION FROM GROSS INCOME OF LISTING EXPENSES
ALLEGEDLY INCURRED BY RESPONDENT

III

THE COURT OF TAX APPEALS ERRED IN HOLDING

THAT THE AMOUNT OF P60,000 REPRESENTED BY
RESPONDENT AS PROVISION FOR CONTINGENCIES WAS
ADDED BACK BY RESPONDENT TO ITS GROSS INCOME IN
COMPUTING THE INCOME TAX DUE FROM IT FOR 1958
 IV

THE COURT OF TAX APPEALS ERRED IN DISALLOWING

ONLY THE AMOUNT OF P6,666.65 AS SUIT EXPENSES, THE
CORRECT AMOUNT THAT SHOULD HAVE BEEN
DISALLOWED BEING P17,499.98.

It is well to note that only in the Court of Tax Appeals did

the Commissioner raise for the first time (in his
memorandum) the question of whether or not the business
expenses deducted from Atlas gross income in171958 may be
allowed in the absence of proof of payments. Before this
Court, the Commissioner reiterated the same as ground
against deductibility when he claimed that the Court of
Tax Appeals erred in allowing the deduction of transfer
agents fee and stock listing fee from gross income in the
absence of proof of payment thereof. The Commissioner
contended that under Section 30 (a) (1) of the National
Internal Revenue Code, it is a requirement for an expense
to be deductible from gross income that it must have been
paid or incurred during the year for which it is claimed
that in the absence of convincing and satisfactory evidence
of

_______________

17 p. 158, Memorandum for Respondent (Commissioner of Internal

Revenue), CTA Records.

258

258 SUPREME COURT REPORTS ANNOTATED

Atlas Consolidated Mining & Dev. Corp. vs. Commissioner
of Internal Revenue

payment, the deduction from gross income for the year

1958 income tax return cannot be sustained and that the
best evidence to prove payment, if at all any has been
made, would be the vouchers or receipts issued therefor
which ATLAS failed to present.
Atlas admitted that it failed to adduce evidence of
payment of the deduction claimed in its 1958 income tax
return, but explains the failure with the allegation that the
Commissioner did not raise that question of fact in his
pleadings, or even in the report of the investigating
examiner and/or letters of demand and assessment notices
of ATLAS18
which gave rise to its appeal to the Court of Tax
Appeal. It was emphasized by Atlas that it went to trial
and finally submitted this case for decision on the
assumption that inasmuch as the fact of payment was
never raised as a vital issue by the Commissioner in his
answer to the petition for review in the Court of Tax
Appeal, the issues is limited only to pure question of law
whether or not the expenses deducted by petitioner from its
gross income for 1958 are sanctioned by Section 30 (a) (1) of
the National Internal Revenue Code.
On this issue of whether or not the Commissioner can
raise the fact of payment for the first time on appeal in its
memorandum in the Court of Tax Appeal, We fully agree
with the ruling of the tax court that the Commissioner on
appeal cannot be allowed to adopt a theory distinct and
different from that he has previously pursued, as shown by
the BIR19records and the answer to the amended petition for
review. As this Court20 said in the case of Commissioner of
Customs vs. Valencia such change in the nature of the
case may not be made on appeal,

_________________

18 p. 18, Rollo, G. R. No. L26911.

19 Agoncillo vs. Javier, 38 Phil. 424 American Express vs. Natividad,
46 Phil. 207 Balceta, et al. vs. Espe, et al., CAG.R. No. 16115R, April 5,
1957 Commissioner of Custom vs. Valencia, 100 Phil. 172173, October
31, 1956.
20 100 Phil. 172.

259

VOL. 102, JANUARY 27, 1981 259

Atlas Consolidated Mining & Dev. Corp. vs.Commissioner
of Internal Revenue

specially when the purpose of the latter is to seek a review

of the action taken by an administrative body, forming part
of a coordinate branch of the Government, such as the
Executive department. In the case at bar, the Court of Tax
Appeal found that the fact of payment of the claimed
deduction from gross income was never controverted by the
Commissioner even during the initial stages of routinary 21
administrative scrutiny conducted by BIR examiners.
Specifically, in his answer to the amended petition for
review in the Court of Tax Appeal, the Commissioner did
not deny the fact of payment, merely contesting the
legitimacy of the deduction on the ground that 22
same was
not ordinary and necessary business expenses.
 As consistently ruled by this Court, the findings of facts
by the Court of Tax Appeal will not be reviewed
23
in the
absence of showing of gross error or abuse. We, therefore,
hold that it was too late for the Commissioner to raise the
issue of fact of payment for the first time in his
memorandum in the Court of Tax Appeals and in this
instant appeal to the Supreme Court. If raised earlier, the
matter ought to have been seriously delved into by the
Court of Tax Appeals. On this ground, We are of the
opinion that under all the attendant circumstances of the
case, substantial justice would be served if the
Commissioner be held as precluded from now attempting to
raise an issue to disallow deduction of the item in question
at this stage. Failure to assert a question within a
reasonable time warrants a presumption that the party
entitled to assert it either has abandoned or declined to
assert it.
On the second assignment of error, aside from alleging
lack of proof of payment of the expense deducted, the
Commissioner contended that such expense should be
disallowed for not being ordinary and necessary and not
incurred in trade or

__________________

21 pp. 150153, Folder I, pp. 421, 422, Folder III, BIR Records.
22 Par. 6(b) Commissioner of Internal Revenues Answer to the
Amended Petition for Review in CTA Case 1312, p. 57, CTA Records.
23 CocaCola Export Corp. vs. Commissioner of Internal Revenue, 55
SCRA 5 Nasiad vs. Court of Tax Appeal, 61 SCRA 238.

260

260 SUPREME COURT REPORTS ANNOTATED

Atlas Consolidated Mining & Dev. Corp. vs. Commissioner
of Internal Revenue

business, as required under Section 30 (a) (1) of the

National Internal Revenue Code. He asserted that said fees
were therefore incurred not for the production of income
but for the acquisition of capital in view of the definition
that an expense is deemed to be incurred in trade or
business if it was incurred for the production of income, or
in the expectation of producing income for the business. In
support of his contention, the Commissioner cited the
ruling in24 Dome Mines, Ltd. vs. Commissioner of Internal
Revenue involving the same issue as in the case at bar
where the U.S. Board of Tax Appeal ruled that expenses for
listing capital stock in the stock exchange are not ordinary
and necessary expenses incurred in carrying on the
taxpayers business which was gold mining and selling,
which business is strikingly similar to Atlas.
On the other hand, the Court of Tax Appeal relied on the
ruling in the case of Chesapeake Corporation
25
of Virginia vs.
Commissioner of Internal Revenue where the Tax Court
allowed the deduction of stock exchange fee in dispute,
which is an annually recurring cost for the annual
maintenance of the listing.
We find the Chesapeake decision controlling with the
facts and circumstances of the instant case. In Dome Mines,
Ltd. case the stock listing fee was disallowed as a deduction
not only because the expenditure did not meet the
statutory test but also because the same was paid only
once, and the benefit acquired thereby continued
indefinitely, whereas, in the Chesapeake Corporation case,
fee paid to the stock exchange was annual and recurring.
In the instant case, We deal with the stock listing fee paid
annually to a stock exchange for the privilege of having its
stock listed. It must be noted that the Court of Tax Appeal
rejected the Dome Mines case because it involves a
payment made only once, hence, it was held therein that
the single payment made to the stock exchange was a
capital expenditure, as distinguished from the instant case,
where payments were made annually. For this reason, We
hold

_________________

24 20 BTA 377.
25 17 T.C. 668.

261

VOL. 102, JANUARY 27, 1981 261

Atlas Consolidated Mining & Dev. Corp. vs.Commissioner
of Internal Revenue

that said listing fee is an ordinary and necessary business

expense.
On the third assignment of error, the Commissioner
contended that the Court of Tax Appeal erred when it held
that the amount of P60,000 as provisions for
contingencies was in effect added back to Atlas income.
On this issue, this Court has consistently ruled in
several cases adverted to earlier, that in the absence of
grave abuse of discretion or error on the part of the tax
court its findings
26
of facts may not be disturbed by the
Supreme Court. It is not within the province of this Court
to resolve whether or not the P60,000 representing
provision for contingencies was in fact added to or
deducted from the taxable income. As ruled by the Court of
Tax Appeals, the27 said amount was in effect added to Atlas
taxable income. The same being factual in nature and
supported by substantial evidence, such findings should not
be disturbed in this appeal.
Finally, in its fourth assignment of error, the
Commissioner contended that the CTA erred in disallowing
only the amount of P6,666.65 as suit expenses instead of
P17,499.98.
It appears that petitioner deducted from its 1958 gross
income the amount of P23,333.30 as attorneys fees and
litigation expenses in the defense of title to the Toledo
Mining properties purchased by Atlas from Mindanao Lode
Mines Inc. in Civil Case No. 30566 of the Court of First
Instance of Manila for annulment of the sale of said mining
properties. On the ground that the litigation expense was a
capital expenditure under Section 121 of the Revenue
Regulation No. 2, the investigating revenue examiner
recommended the disallowance of P13,333.30. The
Commissioner, however, reduced this amount of P6,666.65
which latter amount was affirmed by the respondent Court
of Tax Appeals on appeal.

________________

26 See CocaCola Export Corp. vs. Commissioner of Internal Revenue,

supra.
27 See Court of Tax Appeals Decision, p. 30, Rollo, G. R. No. L26911.

262

262 SUPREME COURT REPORTS ANNOTATED

Atlas Consolidated Mining & Dev. Corp. vs.Commissioner
of Internal Revenue

There is no question that, as held by the Court of Tax Ap

peals, the litigation expenses under consideration were
incurred in defense of Atlas title to its mining properties.
In line with the decision of the U.S. Tax Court in the case
of Safety28
Tube Corp. vs. Commissioner of Internal
Revenue, it is well settled that litigation expenses
incurred in defense or protection of title are capital in
nature and not deductible. Likewise, it was ruled by the
U.S. Tax Court that expenditures in defense of title of
property constitute a part of 29the cost of the property, and
are not deductible as expense.
Surprisingly, however, the investigating revenue
examiner recommended a partial disallowance of
P13,333.30 instead of the entire amount of P23,333.30,
which, upon review, was further reduced by the
Commissioner of Internal Revenue. Whether it was due to
mistake, negligence or omission of the officials concerned,
the arithmetical error committed herein should not
prejudice the Government. This Court will pass upon this
particular question since there is a clear error committed
by officials concerned in the computation of the deductible
30
amount. As held in the case of Vera vs. Fernandez, this
Court emphatically said that taxes are the lifeblood of the
Government and their prompt and certain availability are
imperious need. Upon taxation depends the Governments
ability to serve the people for whose benefit taxes are
collected. To safeguard such interest, neglect or omission of
government officials entrusted with the collection of taxes
should not be allowed to bring harm or detriment to the
people, in the same manner as private persons may be
made to suffer individually on account of his own
negligence, the presumption being that they take good care
of their personal affair. This should not

_______________________

28 8 T. C. 762763, April 2, 1947 (citing Bowers vs. Lumpkin, 140 Fed.

(2d) 927 Certiorari denied, 322 U. S. 88 Jones Estate vs. Commissioner,
127 Fed. (2d) 231 Brauner vs. Burnet, 63 Fed. (2d) 129 Murphy Oil Co.
vs. Burnet, 55 Fed. (2d) 17, affirmed in another point, 287 U. S. 299.
29 Coughlin vs. Commissioner of Internal Revenue, 2 T. C. 422.
30 G. R. No. L31364, March 20, 1979, 89 SCRA 199.

263

VOL. 102, JANUARY 27, 1981 263

Atlas Consolidated Mining & Dev. Corp. vs.Commissioner
of Internal Revenue

hold true to government officials with respect to matters

not of their own personal concern. This is the philosophy
behind the governments exception, as a 31general rule, from
the operation of the principle of estoppel.
WHEREFORE, judgment appealed from is hereby
affirmed with modification that the amount of P17,499.98
(3/4 of P23,333.00) representing suit expenses be
disallowed as deduction instead of P6,666.65 only. With
this amount as part of the net income, the corresponding
income tax shall be paid thereon, with interest of 6% per
annum from June 20, 1959 to June 20, 1962.
SO ORDERED.

Makasiar, Fernandez, Guerrero and Melencio

Herrera, JJ., concur.
Teehankee, J., (Chairman), took no part.

Judgment affirmed with modification.

Notes.The consular certification of value or produce

exported to the Philippines is not conclusive on the
government for tax purposes. (CocaCola Export Corp. vs.
Commissioner of Internal Revenue, 56 SCRA 5).
Although petitioners legislative franchise provides that
it shall be liable to pay 2% franchise tax on gross receipts,
it is still liable to pay the 5% franchise tax prescribed in
Sec. 259 of the NIRC in the absence of a provision in its
franchise that the former shall be in lieu of all taxes of
every kind. (Visayan Electric Co. vs. Commissioner of
Internal Revenue, 39 SCRA 43).
The mere filing of a motion for reconsideration does not
suspend the running of the period for the collection of the
tax. (Republic vs. Marsman Dev. Co., 44 SCRA 418).

__________________

31 Ibid.
* Mr. Justice de Castro was designated to sit with the First Division
under Special Order No. 225.

264

264 SUPREME COURT REPORTS ANNOTATED

People vs. Yutila

The 3year period of prescription refers to the collection of

income tax by summary proceeding and not by court action.
(Gen. Ins. & Surety Corp. vs. Commr. of Internal Revenue,
50 SCRA 445).
Action to recover municipal license taxes under Art.
1145(2) of the new Civil Code prescribes in six years.
(Southeast Asia Mftg. Corp. vs. Mun. Council of
Tagbilaran, Bohol, 94 SCRA 341).
An assessment is illegal and void when the assessor has
no power to act at all. It is erroneous when the assessor has
 the power but errs in the exercise of that power. (Victorias
Milling Co., Inc. vs. Court of Tax Appeals, 22 SCRA 1008).
An assessment is deemed made when the notice to that
effect is released, mailed or sent to the taxpayer for the
purpose of giving effect to the assessment. (Republic vs. De
la Rama, 18 SCRA 861).
A revised assessment cannot be deemed effective as of
the date of the original assessment where the taxpayer
made no attempt to delay the assessment proceedings by
repeated requests or other positive acts on his part but only
asked once for a reexamination on the same record and
evidence that the revenue authorities already had before
them. (Republic vs. Alano, 12 SCRA 24).
The taxpayers failure to appeal within 30 days from the
income tax assessment made by the Collectors of Internal
Revenue, renders said assessment final, executory and
demandable, thereby barring the taxpayer from invoking
any defense that would reopen the question of his tax
liability on the merits. (Republic vs. AIbert, 3 SCRA 717).

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